We like to think that buying a home is all about getting a certain style home, with the perfect number of bedrooms, high end finishes and hardwood floors throughout. Home buyers so often get caught up in the dream and superficial details that they quickly forget about what it all really comes down to – money.
Your credit score impacts the mortgage loan amount that you are approved for, and if you even get approved at all. Additionally, a lower score typically means that you will end up paying more in fees, or you have to come up with a more substantial down payment.
As soon as you start thinking about the possibility of buying your own home, it is important to become educated about your own credit situation. There are three different agencies that develop credit reports on everyone – Equifax, Experian and TransUnion. Each report will likely give you a slightly different score, so just be aware that most lenders will focus on your middle credit score.
As long as you do not have a bunch of maxed out credit cards, you have been making credit card payments on time and you have been responsible about any other loans you may have, this financial responsibility will usually be reflected with a higher credit score. Hence, lenders will see you as low-risk and offer you a low rate and reasonable conditions on your loan. To take advantage of the lowest interest rates, you should aim to have a credit score of 700 or above. (850 is the highest possible score.)
Fortunately, if your credit score is less than ideal, you can always work to get it higher. Take a look at your credit reports, and make sure you are not being penalized for any old, paid or settled debts. Mistakes can happen, so make the effort to educate yourself on what shows up on your credit reports. Additionally, take a break from applying for any new lines of credit for a while, ideally a year before you want to finance a home.
Your credit score plays a significant role in the home buying process, and you owe it to yourself to truly understand your financial situation.
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